Recordings that implicate President Michel Temer in a
possible bribery scandal have hit Brazil's sovereign bonds and
the state-owned oil company Petrobras’ notes,
casting doubts over the country's pipeline of trades.

Petrobras’ bonds were spotted some 50bp wider
across the curve with its 2115 bond hit the hardest, debt
capital markets bankers said. The century bond was down 8bp on
Thursday at 83.25, while the shorter end of
Petrobras’ curve had widened 4bp to 5bp, the
bankers said.

Brazil’s sovereign bonds were down between
3.5bp to 5bp on Thursday morning, feeling the heat from this
week’s US stock sell-off as well as the country's
internal woes.

Petrobras
reopened its 2022s, 2027s and 2044s on Monday, adding $4bn
across the three tranches. Petrobras’ 6.125% 2022s
were spotted below 105 cents on Wednesday, after being
reoffered at 105.14 on Monday, while the 7.25% 2044s were seen
at less than 103 on Thursday.

Investors fear that Temer’s proposed social
security reforms could stall if more corruption allegations
plague an economy on the road to recovery. Investors have piled
into Brazilian stocks and bonds this year on the back of
Temer’s labor and pension reforms.

A report on the local daily O Globo said Temer had
been secretly recorded discussing hush money payoffs to the
former House Speaker Eduardo Cunha.

Prosecutors received the recordings as part of a plea
bargain with Wesley and Joesley Batista, who control the meat
company JBS. Temer reportedly spoke to Joesley Batista about
cash payments to Cunha, who was arrested in October last year
for his role in the Lava Jato corruption scandal.

In the recordings, Batista said he was paying Cunha in
exchange for silence and Temer replied, "You have to keep it
going, OK," O Globo reported on
Wednesday.

Temer denied the charges in a statement, saying he never
endorsed payments to buy Cunha's silence. Temer confirmed that
he met Batista in early March but he said the conversation did
not include anything that "would compromise the conduct of the
president."

The Batistas are also linked to an investigation
for possible irregularities in transactions made with state-run
development bank BNDES.

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